Tobacco stocks and the allure of the almighty buck

By the Editorial Board

December 13, 2016 06:18 PM

The latest news out of California’s giant pension fund almost makes you wonder what its investment advisers are smoking.

The investment staff of the $300 billion California Public Employees’ Retirement System fund is urging the board to reverse its long-standing policy and invest pension money into tobacco stock, the better to pump up returns, which have lagged compared to investment funds run by people with fewer scruples.

Board members should reject the recommendation, and stick to CalPERS’ stated commitment to “transparency, accountability, and the highest ethical standards.”At the urging of legislators and public health advocates, CalPERS decided in 2000 to sell off tobacco company stocks, a process completed in 2002.

But an outside CalPERS consultant has found that the decision came at a cost of $3.6 billion. In a report to the board, which meets on Monday, the staff said that “limiting the opportunity set for investments has generally been shown to have a detrimental effect on performance, and CalPERS’ experience with its tobacco investment restrictions over the past 15 years has been no exception to the general rule.”

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CalPERS invests in many stocks, as it should. (Stocks in coal companies and makers of assault weapons illegal in California are two other exceptions.) The board has a duty to earn a return. But CalPERS money ultimately is taxpayers’ money. And voters declared what they think of tobacco a month ago by approving an initiative to raise tobacco taxes by $2 per pack, a decision that will cut smoking by raising costs.

Tobacco may not be a wise long-term investment. Stanton Glantz, a UC San Francisco medical school professor and tobacco researcher, pointed out in a letter opposing reinvestment that during the Obama administration, smoking has been falling at a rate that is more than twice as fast as in past years.

Smoking prevalence in California is lower than all states other than Utah, thanks to California’s decades-long anti-tobacco efforts. Even so, Glantz noted, the tobacco business still kills 40,000 Californians each year, with associated annual costs of more than $27 billion. The state should not profit off a product that kills when used as directed.

Or California could go with what appear to be the values of an incoming era. Maybe it’s time to reinvest in coal and guns, and double our stake in Exxon. And now that voters have legalized the commercial sale of marijuana, perhaps a hefty weed investment would be in order. A CalPERS spokesman says not. But who knows? It’s surprising how easily minds can be clouded when someone starts blowing smoke in the name of the almighty buck.